Caverton loss narrows on one-off gains as debt and liquidity risks persist

Caverton Offshore Support Group Plc reported a pre-tax loss of N13.87 billion for 2025, a 74% improvement from the N53.67 billion loss posted in 2024. Total revenue fell 40% to N24.1 billion, dragged down by broad-based weakness across its service categories.

Flight-contract revenue, the group's largest segment, plunged 61% to N7.74 billion. Helicopter-charter revenue slipped 7% to N7.60 billion, while training services dropped 35% to N4.52 billion. Aviation activities accounted for nearly 94% of total revenue, highlighting the group's heavy reliance on a struggling Nigerian oil and gas support market.

Despite the top-line contraction, Caverton swung to an operating profit of N3.60 billion from a prior operating loss of N30.96 billion. This recovery, however, was an accounting construct rather than a reflection of underlying business strength. A sharp 62% drop in the cost of sales expanded gross margins to 50.39%, but these savings were immediately swallowed by a 176% surge in administrative expenses to N28.99 billion.

The largest administrative hit was a N17.42 billion write-off of security deposits paid on leased aircraft after failed lease terminations. To offset this, the group relied heavily on non-core income. Operating profitability was entirely dependent on N13 billion in other gains, including N7.68 billion in foreign exchange gains, N3.35 billion from lease terminations, N3.28 billion from liability settlements, and a N5.44 billion profit from asset disposals.

These one-off items could not overcome the company's heavy debt burden. Finance costs reached N18.64 billion, driven by interest on borrowings that more than tripled to N15.82 billion. Total debt now stands at N71.36 billion, up 30.5% year-over-year. This interest expense pushed the company firmly back into the red at the pre-tax line.

The balance sheet reveals acute liquidity pressures. Current liabilities of N106.25 billion dwarf current assets of N35.92 billion, resulting in net current liabilities of N70.33 billion. Current borrowings nearly doubled to N53.45 billion. While cash balances recovered to N3.37 billion from a dangerously low base, total equity remains deeply negative at N8.76 billion. A N59.72 billion revaluation of property, plant and equipment inflated total assets to N118.63 billion, but this unrealized gain offers no operational relief.

The market has reacted positively to the narrowed losses, with shares gaining 13.27% over the past month to N5.55. At this price, Caverton holds a market capitalisation of N18.60 billion. For market participants, the central question is whether this recent rally is sustainable. With core revenues collapsing, debt servicing costs spiralling, and liquidity severely strained, the current valuation appears to be betting on balance-sheet revaluations rather than a genuine operational turnaround.